The Stock Market and the Academic Job Market : A Domino Effect

A look at both the stock market and the academic job market shows us that the two players have fairly well incorporated the “If you go down, I go down policy,” in which the latter almost always follows the former. Past stock market crashes have shown that the stock market has a direct effect on the academic job market – the falling stocks make job openings tumble down like dominoes. But why?

Let’s travel back in time to 1988 – the period following one of the stock market crashes. Right after the stock market crashed, the number of job openings in the academic job market declined drastically.

It took that highly competitive, academic job market ten years to reach the same amount of job openings that it offered before the crash.

Less job openings were available and as a result, there was competition not just for the best open jobs, but for jobs in general. Those who got decent-paying jobs in their field, were considered very lucky. Therefore, it can be affirmed that a stock market downfall results in abrupt job losses, while a rise results in gradual job openings.

The Economy and the Job Market

An improvement in the economy impacts the job outlook by making it more promising, and not just in the realm of academics. The academic job market has an effect on the future growth of the economy, being that it is mostly endowment-driven. All public schools and some private schools are endowment-driven, while some other private schools are tuition-driven. That being said, endowment-driven institutions rely on large endowments, which are affected by the stock market.

Once a crash takes place, endowments are set back a bit and less funding for schools leads to job cuts.

Private schools have the additional benefit that they receive money through tuition paid by each student, even if they receive government funding as well.

College and university endowments are affected greatly by the stock market since they lose in value when the stock market declines. For example in 2009, the stock market declined 28 percent and at the same time $395 million in endowments was lost by four universities: University of Cincinnati, Xavier University, Miami University, and Northern Kentucky University. Then in 2010, the market jumped by 12 percent, and those universities gained $111 million, as reported in Cincinnati’s Business Courier. With this said, many U.S. universities rely on endowments, the value of which is directly related to losses and gains in the stock market. This evidence gives true meaning to the domino effect of the stock and academic job markets.

Retirements and Hiring – a Competition for Jobs

The stock market also affects the academic job market in a different way – in terms of retirement. When the stock market declined from 2000 to 2002, many academic job holders decided to postpone their retirements when mandatory retirement was lifted. However, if they don’t retire, there won’t be any jobs openings for recent graduates or other job seekers. Therefore, when stock prices increase so do the number of academic retirements, and, in turn, so do the numbers of open jobs in the market, as reported in the Journal of Economic Perspectives.

In the 2000s, the number of job listings for the academic job market decreased due to the stock market decline and to the recession. This had a direct impact on the finances of both public and private education, and led to the hiring of employers from fields other than academics. Retirements were postponed in the beginning of the 21st century when the stock market declined, but eventually these retirements do take place. Some might have taken place already, while others may happen in the near future.

Teaching demands

The demand for academic faculty will always exist – either due to retirements, or to the steadily growing number of students, or for other reasons. A dissatisfaction with the proposed salaries may lead to the hiring of those who accept such conditions. Colleges are experiencing increased enrollments, giving schools more paid tuition, and leading to a demand for faculty. The increase in students is in part affected by the stock market, mainly through the urge to study longer rather than rely solely on jobs or investments.

To conclude, academics institutions are endowment-driven and are affected directly by the fluctuating stock market. As history has shown, stock market declines caused declines in retirements and in job openings, as everyone all around secured their finances. If stocks go down, job openings in the academic department go down as well, just like dominoes. The problem is getting those pieces to stand upright once again, and to keep them standing strong, immune to any shifting winds.

NOTICE: This article was based on research of stock market information and other sources of information, found both online and in print media. Neither StockTips.com nor any of its owners, contributors, officers, directors, consultants, or employees take responsibility for the accuracy of the information contained in this article or the accuracy of the information on which this article was based. StockTips.com was not compensated by any of the companies mentioned in this article for the preparation of this material, nor were the materials approved by the companies which were mentioned.

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